Home Business A Look At Large-Cap Banks Post Q3 Earnings

A Look At Large-Cap Banks Post Q3 Earnings

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Sterne Agee analysts’ top large-cap bank picks have an average estimated P/E multiple of about 13.5x based on their 2016 EPS estimates, indicating a potential upside of 17%.

Terry McEvoy and the team at Sterne Agee in their industry report dated November 6, 2014 titled: “Sterne Agee’s Top Bank Picks Coming Out of the 3Q14 Earnings Season” listed 18 large-cap banks as their top picks.

BB&T and Fifth Third top large-cap bank picks

Terry McEvoy et al like BB&T Corporation (NYSE:BBT) for the bank’s growing insurance business and lack of exposure to leveraged lending. They note BB&T is unique among the regional banks for its diversified revenue stream and lower risk balance sheet. The analysts anticipate the potential for EPS accretive bank acquisitions consistent with pending deals in Texas and Kentucky.

Despite slowing loan growth in the third quarter, the analysts keep the faith with Fifth Third Bancorp (NASDAQ:FITB). They note management’s decision not to compete in the market place in light of pricing pressure and weakening loan structures. Though management’s decision will manifest in slower growth, the analysts believe the bank will be rewarded over time.

Top picks in mid-cap

Turning their focus towards mid-cap growth, the Sterne Agee analysts anticipate with stronger-than-expected loan, deposit, and earning asset growth in the third-quarter, Signature Bank (NASDAQ:SBNY)’s consensus 2015E EPS of $6.65 and 2016E EPS of $7.66 should move toward their 2015E EPS of $6.75 and 2016E EPS of $8.00. The analysts anticipate Y/E AEA growth of 25% in 2014E, 20% in 2015E and 16% in 2016E.

Terry McEvoy and team anticipate Prosperity Bancshares, Inc. (NYSE:PB) to exceed present consensus expectations over the next year, though the analysts have modestly trimmed their aggressive assumptions. Anticipating M&A opportunities over the next year and enhanced loan growth, the analysts retained Prosperity as one of their top picks among the mid-cap growth. They also like PrivateBancorp Inc (NASDAQ:PVTB) for its ability to report above peer loan and fee income growth and a very asset-sensitive balance sheet.

In the mid-cap value space, the SA analysts prefer TFS Financial Corporation (NASDAQ:TFSL) for its ability to successfully execute on its three-pronged approach to capital management. Among the Northeast banks, they like Investors Bancorp Inc. at 108% of tangible book value as against over-capitalized peers trading closer to 1.3x. In the mid-cap value space, Popular, Inc. is highlighted on the assumption the bank will benefit over the next year from several M&A opportunities.

Top picks in small and micro caps

Focusing on small cap growth, the Sterne Agee analysts have upgraded Western Alliance Bancorporation (NYSE:WAL) to BUY following 3Q14 results, and they anticipate both loan and EPS growth to remain better than expected over the next several quarters. They also believe EverBank Financial Corp (NYSE:EVER) is well-positioned to produce upside potential over the next couple of years and hence their 2015E EPS of $1.55 remains above consensus of $1.47. Thanks to ~20% annualized loan growth, Sterne Agee upped their 2014EPS estimates for ConnectOne Bancorp Inc (NASDAQ:CNOB) Inc to $1.18 from $1.13.

Among the small-cap value, Terry McEvoy and colleagues like TCF Financial Corporation (NYSE:TCB) for its core banking trends in the third quarter. With focus on organic growth and profitability improvement lifting below-average valuation to peer levels, the analysts like Old National Bancorp (NASDAQ:ONB). The anaysts also prefer Sun Bancorp Inc as they anticipate it will be break-even in 4Q14 and earn a modest operating profit in 1Q15.

In micro-cap growth, the Sterne Agee team remain positive on Meta Financial Group Inc. (NASDAQ:CASH), Inc. for its accelerating organic loan growth and the recent AFS/IBEX (non-public) acquisition. They anticipate Investar Holding Corporation will gain from a very strong loan growth trajectory and its focus on enhancing operating-leverage.

Finally, in the micro-cap value space, Terry McEvoy and colleagues prefer OceanFirst Financial Corp. (NASDAQ:OCFC) as it’s making headway enhancing commercial loans and increasing profitability metrics. The analysts also suggest The First Bancshares, Inc. (MS) (NASDAQ:FBMS) among the micro-caps as they are bullish about the firm’s growth prospects over the next two years.

The following table captures the summary of the Sterne Agee research team’s top bank picks:

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